- History and Relevance of AusIMM’s VALMIN Code 1981-2001
- The AusIMM’s VALMIN Code (1998) – now an international guide to project assessment and valuation best practice
- The VALMIN Code – Bible, Roadmap or Signpost?
- Should the VALMIN Code be Mandatory? — Comparisons to the Canadian Experience: Observations and Comments from a Canadian Lawyer
- Working with VALMIN: a Practitioner’s View
- Valuation Methodology for VALMIN
- The VALMIN Code – the Australian experience
- Busang’s “Red Flags” and the AusIMM’s Codes
- Indonesian and International Regulatory Response to the Busang Fraud
- 2001 Independent Review of the VALMIN Code (1998) Review: Panel Discussion Issues Paper
The VALMIN Code was adopted by The AusIMM on 17 February 1995 and applied to all relevant Reports required under the Corporations Law from 1 July 1995. It was amended on 22 November 1997 and applies to all relevant Reports required under the Corporations Law issued on or after 1 April 1998.
History and Relevance of AusIMM’s VALMIN Code 1981-2001
MJ Lawrence, Bsc (Hons1), GDPSM, FAUSIMM(CPGEO), FAIG, FIMM, AIAMA, MMICA, Managing Director, Minval Associates Pty Limited, Croydon, New South Wales, Chief Valuer, MJ Lawrence Holdings Pty Limited & Mineral Industry Services, Burwood, NSW Chair, VALMIN Committee & Convenor VALMIN 2001.
The evolution of AusIMM’s VALMIN Code and Guidelines is traced from its beginnings in 1981. AusIMM’s Mineral Valuation (VALMIN) Committee, first met in 1991 and produced the original document in 1995. They underwent an extensive review in 1997, resulting in the VALMIN Code and Guidelines (1998).
The AusIMM’s VALMIN Code (1998) –
now an international guide to project assessment and valuation best practice
Michael J Lawrence, FAUSIMM, CPGEO, FAIG, FIMM, CENG, MMICA, Chairman VALMIN Committee, Council Representative VALMIN Committee since its creation on 5 April 1991. AusIMM 1999 Past President, Managing Director & Chief Valuer, Minval Associates Pty Limited
The VALMIN Code (1998) deals both with the issues to be addressed when technically assessing a mineral property and also those involved in its valuation (or appraisal, using the North American term). This Code is a revision, based upon the experience gained using the initial edition published in 1995. Its use for relevant reports became mandatory only for members of The Australasian Institute of Mining and Metallurgy (AusIMM) at that time, but its widespread acceptance by the market has meant that it is invariably used by professionals writing all independent reports required by the Corporations Law as well as in other related circumstances. In fact, the VALMIN Code has been accepted as a basis for the current development of similar codes in other overseas jurisdictions, eg Canada, USA and Indonesia. This adoption of a relatively standard approach to project assessment and valuation will assist the global mobility of all mineral industry professionals and provide the market with a reliable basis for making investment decisions.
The VALMIN Code – Bible, Roadmap or Signpost?
John M. Blumer, B Gen Sc, MAAPG, FAUSIMM, MMICA, MAIG, MASEG, MGSA, MPESA Managing Director, Robsearch Australia Pty Limited
Perceptions of the objectives and implementation of the VALMIN Code vary widely within the mineral industry, and there is some divergence of views even among members of the VALMIN Committee itself. Some see it as a definitive rulebook for preparation of reports, with any infringements providing clear grounds for disciplinary action by their professional institute, while others see it as a compelling manual of practice to assist practitioners in preparing reports of the highest possible quality.
Should the VALMIN Code be Mandatory?
— Comparisons to the Canadian Experience: Observations and Comments from a Canadian Lawyer
Michael J. Bourassa, B Sc (Hon), Llb, Partner & Member Of Natural Resources Group Aird & Berlis, Barristers & Solicitors, Toronto, Canada
Canada recently completed a major review of its mining reporting standards which culminated with the release, just over one year ago, on February 2, 1999, of the final report of the Mining Standards Task Force (“MSTF”). The final report made 66 specific recommendations relating to the raising of mining standards in Canada. These recommendations were aimed at maintaining Canada as a lead jurisdiction in mineral exploration, development and production finance. Although the MSTF Report has made a number of key recommendations, it falls to various Canadian self-regulatory and regulatory organisations to implement the MSTF recommendations.
Following the release of the MSTF report a number of initiatives have been commenced or completed and regulatory initiatives are continuing on several other important issues affecting the Canadian mineral exploration and mine development industry. These initiatives are set out in Section 1 below.
The major focus of this paper will be to compare the Australian VALMIN Code to the proposed National Instrument 43-101 in Canada. An analysis of the more important provisions of VALMIN and NI 43-101 are set out in Appendix 1.
Working with VALMIN: a Practitioner’s View
G R (Bob) Appleyard, B Sc (Hon), BA, FAUSIMM, CPGEO, MMICA, MICM, AUSTRALIAN MINERAL CONSULTANTS
As a consultant preparing public and private valuation and assessment reports since 1990, the writer has worked under the former NCSC guidelines and since 1995 under the original and modified (1998 edition) VALMIN Code. This paper highlights some of the more difficult and contentious practical issues resulting from that experience. The extent of site visits is an area of debate. Aspects of confidentiality can be difficult to resolve. Balancing the time available to prepare a report for Corporations Law purposes with the degree of due diligence required under VALMIN can be stressful, particularly when combined with arguably token adherence to the Code by the client.
This paper concludes that the VALMIN Code is a generally effective and pragmatic operating discipline. Recommended areas for future attention include the balance between the detail of reports and their readability and greater recognition that mineral asset values can vary significantly with both the market and the purpose of valuation. The reconciliation of Technical Value and Fair Market Value cannot always be addressed by application of an arbitrary premium or discount.
While in the writer’s belief, the VALMIN Code is enforceable while at the same time pragmatic, its detail means that there will always be scope for “nit picking”. It is hoped that in administering its enforcement, there will always be an emphasis on flexibility when good faith and care within the scope of the brief are obvious.
Valuation Methodology for VALMIN
Dr. Carlos Sorentino, Ph D, M Env St, B Eng, Dip Rad Tech, FAUSIMM, CPMAN, MMICA, MRACI, CCHEM, Chairman MICA, Chairman AusIMM Board Of Chartered Professionals, AusIMM Councillor, Principal Ekos Research Pty Ltd, Director SMN Management Ltd., Associate Minval Associates
This paper examines the methodologies commonly used in the valuation of mineral properties. A methodological context is developed by presenting the general framework for asset valuation provided by multidimensional utility theory. It is shown how utility theory provides the theoretical basis for a number of forms of discounted cash flow analysis including the net present value of expected cash flow and the utility appraisal of the probability distribution of net present value based on a utility function, stochastic dominance criteria, or intuitive judgement. Modern portfolio theory and the capital asset pricing model are also presented.
The subject literature suggests that the most controversial questions asked about mineral property valuation are:
is it legitimate to extend the application of discounted cash flow analysis to the valuation of mineral properties characterised by very imprecise data and thus remove the historical reliance on theoretically unsound methods of valuation based on inference and scoring of subjective judgements?
can risk be treated satisfactorily by adding a risk premium to the discount rate (either judgementally, on the basis of returns historically demanded by investors, or on the basis of the Capital Asset Pricing Model) or should risk be treated explicitly in a Monte Carlo simulation analysis?
This paper concludes that:
- discounted cash flow analysis can be extended to properties characterised by imprecise data but mining analysts must first become more comfortable with the use of subjective probabilities. This requires an abandonment of the old distinction between risk and uncertainty inasmuch as it considers uncertainty fundamentally unamenable to quantification and the only respectable definition of probability is an objectivist one based on relative frequency;
- the Capital Asset Pricing Model is relevant to mineral property valuations, provided its underlying assumptions are satisfied and the model is properly applied in a methodological rigorous way; and
- project specific risks can be treated explicitly using Monte Carlo simulation.
The VALMIN Code – the Australian experience
Presented at Mining Millennium 2000 PDAC/CIM, 5-10 March 2000, Toronto, Canada.
Michael J Lawrence, FAusIMM(CPGEO), FIMM, MMICA, Ceo & Chief Valuer, Minval Associates Pty Limited, Croydon, NSW, Australia, 2132, Past President 1999, The Australasian Institute Of Mining And Metallurgy
The VALMIN Code was developed and formally adopted by The Australasian Institute of Mining and Metallurgy (AusIMM) in 1995 and a revision was issued in 1998. The VALMIN Code applies to all relevant reports under the Australian Corporations Law, including submissions to the Australian Stock Exchange (ASX) and the Australian Securities and Investments Commission (ASIC).
The VALMIN Code and Guidelines sets standards for the preparation and commissioning of independent assessment and/or valuation reports on mineral and petroleum assets or mineral and petroleum securities.
It is mandatory for AusIMM’s members to follow this Code in these relevant circumstances and failure to do so will result in serious sanction of the member by the AusIMM’s Ethics Committee. Public support for the use of this Code has been given by regulators (ASX/ASIC) and market participants (eg major accountancy firms). It is also endorsed as a guide to general best practice in project assessment and valuation.
This paper will discuss how the VALMIN Code has worked in practice over the past few years. It will also examine areas where the Code could be improved and how it could form the basis of a new Canadian Code for mineral property valuation
Busang’s “Red Flags” and the AusIMM’s Codes
Presented to the “PNG Exploration Roundup Conference”, Port Moresby Branch, 19-20 May 1999. Presented at AusIMM Mt Isa Branch President’s Dinner, 17 August 1999
Michael J Lawrence, Bsc(Hons1), GDPSM, FAUSIMM(CPGEO), FAIG, FIMM, MMICA
This paper looks specifically at the information that came to light during the exploration of Busang over the 1993 to 1997 period (“red flags”), which should have caused questions to be asked about the good news being regularly reported to investors; and the recommendations of the Mining Standards Task Force (MSTF) set up on 28 July 1997 to make recommendations for changes to the Canadian securities and stock exchange regulation of listed exploration and mining companies, post-Busang (see also Lawrence, 1998a,b,c and 1999)
Indonesian and International Regulatory Response to the Busang Fraud
Michael J Lawrence, Bsc(Hons1),GDPSM, FAUSIMM(CPGEO), FAIG, FIMM, MMICA, Managing Director, Minval Associates Pty Limited, Croydon, NSW 2132, Australia, 1999 President, The Australasian Institute Of Mining And Metallurgy
Whilst deliberate deception can be never ruled out entirely, the enormous scale of systematic deception involved in the Canadian listed Bre-X scandal (originating in the tampering with the drill core from the Indonesian Busang gold deposit), would have been much less likely to occur if proper surveillance systems had been in place. Such systems involve a national securities watchdog and a national stock exchange, as well as a nationally coordinated accreditation scheme for mining professionals that has enforceable and serious ethics codes. One must create the right ethos amongst the system’s participants, allow peer pressure to operate fairly and place the focus on the performance of named individuals involved in the ongoing technical assessment of a project. It is, therefore, essential to use accredited technical professionals who follow internationally accepted best practices that are based upon transparency and timely, full disclosure; and to require periodic independent verification of the technical results reported. Due diligence must be practised by all those involved.
This paper notes the evidence (the “red flags”), that came to light before the exposure of the Busang saga, which should have caused questions to be asked about the extremely favourable results being regularly reported to investors; then further discusses the absence of use of the due diligence process by those involved in the Bre-X saga.
2001 Independent Review of the VALMIN Code (1998) Review: Panel Discussion Issues Paper
JJ Kelly, BE, FAUSIMM, FIEAUST(CPENG), Principal, J Kelly Services Pty Limited, Victoria Deputy Chair, VALMIN Committee
MJ Lawrence, Bsc (Hons1), GDPSM, FAUSIMM(CPGEO), FAIG, FIMM, AIAMA, MMICA, Managing Director, Minval Associates Pty Limited, Croydon, New South Wales Chair, VALMIN Committee & Convenor VALMIN ’01
Peter Stitt, BEng Grad Dip FAUSIMM MMICA CPGEO MAIG FIQ, Principal, Peter Stitt & Associates Pty Ltd, Sydney, NSW MICA Representative, VALMIN Committee & Organising Committee VALMIN ‘01
A presentation is to be made to the VALMIN ’01 Conference by the 2001 Independent VALMIN Code (1998) Review Task Force (Code Review Task Force), outlining its work as a precursor to this Panel Discussion. This Task Force was set up by AusIMM in early 2001 to essentially review the operation and current applicability of the present Code. A brief paper summarising its genesis, terms of reference and work to date, by Ian Goddard, Peter Onley and Warren Staude, appears in the VALMIN ’01 Volume.
This paper has been prepared to augment and complement that document. It attempts to set the scene for the Panel Discussion of the VALMIN Code (1998) by providing some background on some areas of concern with the Code known to the authors.
In particular, the general views of MICA are summarised in this paper as a further basis of discussion by Conference attendees. MICA has made a formal submission to the Code Review Task Force, but as the main organiser and sponsor of VALMIN ’01, it wishes its views to be on the record so they can be aired and debated openly.